If you’ve done any research about raising funding for your startup or small business – or, really, if you know anything about human behavior – you’ll recognize that you have a much better chance at getting an angel investor or venture capitalist to write a check to fund your business if you’re able to get a warm introduction to that investor. Assuming you don’t spend all of your free time rubbing elbows with multimillionaires, however, you may have to put in a little work to get that introduction and I’m going to give you some tips for accomplishing just that.

First up, make sure you’re prepared for a meeting before you head to start trying to get meetings. You really never know when you might procure that warm intro you’re looking for and when the investor will want to meet. I’m not saying you need to jump through ridiculous hoops and be available at an investor’s every beck and call, but if you get the opportunity to have a meeting, you don’t want to ask for a couple of weeks to prepare. Additionally, you have to remember that these investors have lives too and care about many things much more than listening to your pitch. If someone says they’d love to hear your pitch but are heading off on a month-long vacation next week and need to see you the day after tomorrow, you should be ready to pitch them the day after tomorrow.

Secondly, be sure you know what type of investor you’re looking for. Most investors, whether angels or VCs, have a sweet spot within which they like to make their investments. That means that they’ll typically back companies in a particular industry, at a particular stage of development, in a particular geographic region, and that need a particular amount of money. Before you go out there networking, make sure you know where you fall in that mix so that you can be clear about who would be good fit for you as an investment partner and who wouldn’t be.

Thirdly, get out there and become a part of the community. If you’re watching this video wondering how to get a warm introduction to an investor, it’s likely that you haven’t really become a part of the entrepreneurship or startup community in your area. These circles tend to be pretty small and it’s pretty easy to get to know someone who could make a connection for you, or to meet the investors themselves at one of the events in your area. That’s not going to happen if you’re never present in the community, however. Whether or not you’re actively seeking investment, you should be out there getting to know the other entrepreneurs in your area, participating in events, sharing your idea, learning from others, and just really committing to being a part of what’s happening on the entrepreneurship scene. This is how you learn, network, and find out about new opportunities for your business.

Fourthly, make use of the technology we have available to us and utilize the networking platforms out there to see who you know that could connect you to someone who might invest. Jump on LinkedIn to look up some of the investors you’d love to work with and you’ll immediately be able to see if someone can make an introduction for you. We have so much more visibility and transparency now than in the past when it comes to others’ networks and you should absolutely make use of that. If you don’t have someone who can make an introduction for you yet, move to Facebook or Twitter and try to find out where the investors you want to meet will be and then plan to attend those events as well. If you continue to participate in the same community in which the investor participates, you’ll eventually meet him or her or at least meet someone who knows him or her.

Finally, be persistent. It may take you a little time to get a warm introduction to the investor of your dreams, but it will be well worth it once you do. Remember as you go through the networking process that there is much more value to building long-term relationships with the people you meet than getting a one-time intro to an investor. The best thing you can do is bring value to the community – share your idea, show off your intelligence and dedication, and most of all, help the other members of the community. An introduction is only effective when it’s backed by praise and you need to have a good reputation in the community in order to get that.

That’s it for this week on New Venture Mentor. Thanks for watching and I hope you found this video helpful. If you did, please let me know by giving me a thumbs up on YouTube and maybe even making a small fan funding donation so that I can keep this channel up and running. If you can’t or don’t want to give, no worries. You should still subscribe to the channel and to my email newsletter over at CateCosta.com to make sure you’re always in the loop on the latest information, tools, and tips to help you plan, launch, and grow your new business.

In my effort to provide useful information to entrepreneurs and aspiring entrepreneurs, I share tons of interesting and helpful articles that I find around the web and think can help answer questions for my followers and help you all move your businesses forward. Often, people write asking me to elaborate on those articles or pieces of those articles so I am starting a series that will do just that. I may combine a few or leave a few out here and there, but I will cover the topics that people most often asked me to elaborate on.

I recently posted an article from RockthePost about common misconceptions people have about launching a new company. The next of those misconceptions that I want to tackle here is the idea that raising funding means you’re a success.

As it’s portrayed in the media, venture capital, startups, and entrepreneurship are all about glitz, glamour, and overnight riches. Because of this, and because of the size of some of the checks that venture capitalists might turn over to entrepreneurs, many new entrepreneurs operate under the misguided idea that raising venture capital money is the goal and that doing so means you’ve succeeded.

The reality, however, is that venture capital investment is not the end goal. By its very definition, it is an investment in the future success of the business. That means that when a VC writes you a check, she’s is saying that she sees success in your company’s future, not that you’re a success right now. If you’d already arrived, how would the investor make money by realizing gains on the increased value of your company?

When viewed in this light, it’s clear that raising venture investment is just one stepping stone on the road to success, and it’s a stepping stone that costs the entrepreneur power, ownership, and control.

Clearly, successfully raising venture capital is an accomplishment and I am not saying that it’s not. It’s great to get the validation of seasoned investors, to know that others believe in your vision and in your ability to achieve it, and to have enough money in the bank to keep the lights on for another month. If you’ve just recently gotten funding, congratulations! You absolutely deserve to celebrate. However, the party shouldn’t last too long because you haven’t succeeded yet. You have to get back to work. Your investors are going to hold you accountable for hitting your milestones and you’ve given up ownership, so you need to increase the value of your company by at least as much as the value of that cash infusion before running through that cash just to get back to where you were. The VC’s check being deposited into your business account does not mean it’s time to kick up your feet.

If you haven’t yet raised venture capital, take the time to step back and honestly evaluate why you’re pursuing the investment and whether or not it’s the best course of action for your business. This isn’t rocket science but BAD reasons to pursue venture capital funding are:

You think it will make you look cool

You want to be able to pay yourself a 6-figure salary for the same work you’re doing right now

You think all startups are supposed to raise VC money

On the other hand, GOOD reasons to raise venture capital funding might include:

You’re building your business in an industry with high startup costs and venture funding is the only way to get the necessary amount of money

You’re experiencing very rapid growth and in order to maintain that momentum, you will need a quick infusion of a lot of cash

If you’re not sure what type of funding is best for your business, don’t chase venture capital just because it’s the most talked about. Less than 1% of all new businesses in the U.S. are funded by angel investors or venture capitalists and if it’s not the right type of investment for your company you’re going to regret chasing it. For a quick overview of the different types of funding available to new businesses, check out my previous post on just that.

The right type of funding is critical to the success of your business, so make sure you’re making a strategic decision about whether to pursue outside investment and what type of investment to pursue as opposed to making a vanity decision based on the perceived “street cred” of a venture investment. And, if you do raise venture capital, be sure to remember that raising that money means you just won a battle, not that you’ve already won the war. Congratulate yourself and then get back to work!

Once you’ve assessed what type of investment would be best for your business, let me know in the comments section below what your strategy is for attaining it.

If you like this video, please let me know by giving it a thumbs up on YouTube and Facebook and, if you think others would find it helpful, remember to share it on social media. Thanks for watching and we’ll see you next week on New Venture Mentor.

If you follow me at all, you know that I am a huge proponent of bootstrapping your business if at all possible. While raising outside investment from a venture capitalist or an angel may be the glitziest way to go, it’s not right for the vast majority of businesses. If you need a large sum of money in order to achieve the rapid growth that you know your company is capable of and can generate huge returns for an investor, by all means get your strategy together for raising VC money. However, for most of you entrepreneurs out there, you’ll just be spinning your wheels because the business you’re building is not suited for that type of investment.

Somehow over the years raising venture capital has become seen as a success in and of itself as opposed to another step on the journey to success, which means everyone wants to raise it, whether or not they should. Therefore, just to make sure that any of you who won’t be raising VC cash don’t get distracted by the glitz of VC land, here are some of the benefits of bootstrapping that entrepreneurs should take full advantage of if they have the option.

Firstly, bootstrapping is the only real way – with the exception of rewards crowdfunding – to maintain complete ownership and control of your business without taking on debt. If you want to be able to steer the ship based on your goals alone without being bogged down by principal and interest payments that may come due before you’re generating revenue, you have to maintain complete control. When you bring on VC investors, they take equity in your company and seats on your board and you are no longer the only leader at the table. You will be forced to take into account how your investors want things done and, depending on the deal structure, may legally need their permission for decisions about how to manage and where to take your company.

Similarly, if you want to build a long-term business, perhaps one that you can pass down to future generations in your family, you don’t want to look at divvying up ownership and control to outside investors because they will expect a quick profitable exit – a completely different goal. Bootstrapping gives you the option to remain in control or try to make a profitable exit and the only person who you need to get onboard with your decision is you.

Next, when you bootstrap you learn to be thrifty, creative, and efficient. Every single penny counts, so you’re not wasting time on stuff that doesn’t matter or you’ll go out of business. Raising too much outside funding can actually have the effect of making a company inefficient – not just in the sense that they spend a large chunk of their time courting investors and then trying to keep them happy, but because the founders now have more funds to play with and less skin in the game. While most don’t intend to slack off just because they’ve raised a round, having a long runway and a buffer to fix mistakes takes away a certain level of urgency and typically leads to a less efficient utilization of the capital available.

Finally, if and when you do succeed, knowing you literally built the entire thing yourself and that you don’t have to split the bragging rights or the cash with anyone will be an incredibly sweet feeling. If you jump into too many rounds of venture funding, you’d be surprised at how quickly you can dilute your power, control, and payout once you finally do sell or IPO. I’ve heard many stories of entrepreneurs who sold their companies for 7 or 8 figures but only walked away with a few hundred thousand dollars after years of hard work.

Once again, there are certain circumstances when raising venture capital is the best decision for your business, but for the vast majority of companies, bootstrapping is a more beneficial option and you should be careful to weigh the pros and cons of each before focusing your energy on raising money instead of building your business.

Now I’d like to hear from you. What are the best reasons you can think of for bootstrapping instead of raising outside capital? Let me know in the comments section below.

If you liked this video or think someone you know would find it useful, please spread the love my liking it and sharing it 🙂

This week’s Startup Nomad interview is with Santiago Zavala, a Venture Partner with 500 Startups Mexico – one of the most active funds in the world, especially in emerging markets – and a former Founding/General Partner at Mexican.VC.

Unlike with many of my other interviewees, Santiago and I spent more time speaking about the development of entrepreneurial ecosystems throughout Latin America than just the situation in his native Mexico. He sees many similarities between all of the cities in the region vying for their place in the world’s startup ecosystem, but he also recognizes the distinctiveness of each.

“I think that we all have in common great talent. We’re really hungry, we’re really resourceful, and we’re really hard-working,” he said. But, “I would say every city…has a very specific context that makes them do things in different ways.”

“The economy in Argentina changes the way you target a market. Colombia, has a very specific culture that makes them think more on a city level rather than a country level and makes them more city oriented than continent oriented. Similarly with Mexico: very specific things in different parts of Mexico lead to different entrepreneurs and different startups happening in different places. So there are differences everywhere and I think anyone who is trying to hide that and just saying that they have access to the whole Latin American region because they have offices in one or two places is probably wrong.”

Because of these differences in cultures and economies, Santiago recognizes that Mexico City may not be the ideal city for every entrepreneur, though it certainly has a lot to offer to many.

“Anyone who is thinking that they can make their city or region or country the go-to place for everyone is probably going to have a really hard time,” he said. “It’s different for every entrepreneur.”

If an entrepreneur is building a company targeting the Spanish-speaking market, however, Mexico City can provide an abundance of opportunities. “We’re in a city of more than 20 million people,” Santiago explained, “so the odds of you being able to find your customer here are pretty big. The odds of you being able to validate with a big corporation here are pretty big, since most of the world’s major corporations have offices in Mexico City.”

If, however, you can acquire your customer online or your target customer is not in Mexico City, there may be other, better options for you for where to base your business.

“If you are building a product that you can acquire your users through the internet,” Santiago said, “and you can tell me that you’ll have a longer runway somewhere else…that’s fine. We don’t have the accelerator here because we think all companies should start here.”

As far as Santiago is concerned, each company has different needs and part of learning to be a good entrepreneur is being able to make the decision that is right for your startup and not necessarily the one that is most popular at the moment.

Despite not claiming that Mexico City is thespot for every new entrepreneur, Santiago is confident that the local ecosystem here will continue to grow and mature over the next few years.

“I’m literally betting everything on it being an awesome ecosystem,” he told me. “We have the same challenges as any other emerging market and we need to face them very clearly,” he continued.

“We are not sophisticated in almost every part of what it takes to build a successful startup because we haven’t seen any success stories…Every city, every entrepreneur needs to start thinking how we’re going to get more sophisticated…The goal is in 3 years to have companies in the Series A/Series B stage…

…I’m sure there will be 1 or 2 cities in Latin America that will have a very vibrant ecosystem in the next few years. I’m not sure if it’s going to be Mexico City. If not, I will have to move.”

Santiago also had an interesting take on the idea that the majority of startups in Latin America are “copy-cat” companies: companies recreating a business that’s already proven successful in another part of the world.

“Of course we see a lot of people that are trying to solve problems that are already solved in other places,” he said. “That’s the reason that you want to invest in emerging markets: there are still problems to be solved…I see a lot of people trying to solve similar problems but the solutions are so different [so] I don’t think there are copycats at all…

…All entrepreneurs need to be building on the shoulders of giants and there is absolutely no reason to reinvent the wheel, [but] the reason that the market was not using [the solution that exists in another region] was that it was not possible to use [the other solution] as it is in this geography…Anyone who thinks that you can just copy a great company is going to realize that it’s really, really, really hard…and when you try to do it in a very different place you are going to realize that there are very different challenges.”

Finally, what’s Santiago’s advice for aspiring entrepreneurs?:

“Try to understand what’s right for you,” he said.

“You need to make sure that you have a very clear compass. One bad decision is not going to lead you to serious problems – you will be able to figure a way out of it – but many bad decisions are going to take you to a place where it’s really hard to solve it and that’s why I think people need to be more sophisticated.” He urges entrepreneurs to really analyze the needs of their startup and not get swept up in the glitzy grant or accelerator programs that abound if they don’t actually add anything to your company.

“Try to talk with a lot of other people in your region about what is the right thing for your startup right now,” he said. And then, “work really, really, really, really hard and make sure that you know why you are doing it.”

In the world of entrepreneurship, raising venture capital money is often looked at as a success in and of itself. It’s the glitziest form of investment that gets the most attention and most play in the press because many VCs have become mini celebrities and the dollar amounts invested can be quite large.

However, venture investment isn’t right for the vast majority of companies and many brand new entrepreneurs have a lot of misconceptions that will hold them back as they attempt to build their new businesses.

The first misconception is that an unknown entrepreneur with no track-record of building successful businesses, no traction – or sometimes not even a product yet, and no VC connections is going to be able to easily get funding if their idea is good enough. Has this ever happened? Of course. Is it likely to happen? Definitely not. Venture capitalists don’t hand out cash – or often even take a meeting with you – if there is no reason to believe you’ll succeed because they don’t know you, you don’t have a track record, and you can’t prove demand for your product because most new businesses fail.

Another common misconception is that you will still be in control of your business after taking on a VC investment. When you take an equity investment from a VC you’ve given up ownership and you’ve usually also given up board seats. This means you’re no longer in complete control. Additionally, you’ve committed to striving for a quick exit, whether or not that would have been your management strategy if you didn’t take on the money. You’re now beholden to your investors instead of a freedom-filled entrepreneur.

The third misconception is that VCs will be interested in anything less than exponential growth. You may have a great idea for a business that will experience modest growth and make great money for you, but that’s not a business a VC will be interested. VCs invest in bunches of companies and most of them fail, so they need their winners to carry the returns for their whole fund. That means that if your business doesn’t present the possibility for insanely rapid growth and 100x returns, you’re not looking in the right place if you’re looking for VC money.

Finally, the misconception I find most frustrating, is the idea that you can start looking for investment today and have a check by the end of the month. Raising venture capital is a long process that takes a lot of time and a lot of effort. You’re typically looking at an absolute minimum of 4 to 6 months to get an investment, usually longer. If you’re going to seek out venture capital you need to do so far in advance of when you need the cash. You can’t wait until the last minute and expect a VC to swoop in and save you without any time for evaluation and due diligence on his end.

Don’t be discouraged though. Just because VC might not be the right source of capital for your startup does not mean your business dreams are dead in the water. There are a number of other sources of capital that can get you going. Take a look back at my old funding sources video to get an idea of what might be a better fit for you and your business.

Now I want to hear from you. What other common misconceptions about raising venture capital have you heard? How did you fund your business? What was the toughest part of raising capital for you and how did you overcome it? Share your stories with us in the comments section below.

Also, if you liked what you heard or you think someone you know could benefit from this discussion, please like and share!

I hope everyone’s off to great start for 2014. We’re back in action here at Startup Nomad, so let’s dive right back into the interviews:

My next stop in Medellín was at Velum Ventures, one of the few venture capital firms in the country, to speak with one of its founders, Esteban Mancuso. Esteban is actually an Argentinian who has relocated to Colombia and brought his vast experience with startups to Colombia’s ecosystem. He’s been a founder, CEO, partner, mentor, or advisor at a host of companies and is a major player in the development of the startup ecosystem in Colombia.

He sees the environment for business as much healthier and more stable in Colombia than in his native Argentina.

“In Colombia, the government is fostering innovation and startups,” he said.

He also sees Colombia’s position within the market as advantageous for entrepreneurs saying,

“As a market there are a lot of opportunities. We have a lot of stability. The middle class is growing. There is a lack of many business models that already exist in Spain or wherever and are successful, so why not come to Colombia and then expand to Peru, Ecuador? Maybe go into Mexico. Maybe go into Chile.”

And he’s not the only one who sees this opportunity. A theme throughout all of my interviews in Medellín was that foreign entrepreneurs have been falling in love with and moving to the Colombian city in droves. According to Esteban, there are a lot of foreigners that came to start businesses in Medellín because “they like the city, they like the climate, and they can buy a house for cheap.”

He sees this as a great opportunity for Colombia to take its place as a leader in the growth of Latin American entrepreneurship and, more selfishly, recognizes the benefits for his own fund.

“What we are realizing is that there are many entrepreneurs from Argentina or Chile or Mexico where there is also a lack of early stage financing who are willing to come and live in Medellín for many reasons,” he said.

The city, the climate, and the universities all rank high. Additionally,

“there is a lot of talent here and the human resources are still cheap compared to other countries for coders and designers,” he said.

There are some hurdles that Colombia still needs to overcome if it wants to create a truly thriving and sustainable ecosystem, however. Many of those hurdles ring true throughout Latin America, and Esteban recognizes that the region, as a whole, shares these hurdles, a major one being a lack of investors.”I think all the rest of Latin America [excluding Brasil and Argentina] is in the same situation,” Esteban told me. “Lack of funds, lack of professional investors.” He continued:

“One of the problems we have in the region, at least in Colombia, is the lack of investors, the lack of angels. Because traditional business people in Colombia are related to traditional industries…and they are not interested in investing in innovation. They’re interested in investing in traditional assets.”

Additionally, it can be tough to attract outside investors that do have experience because the risk is greater in the region due to lower deal flow and lower valuations.

“Valuations in Colombia and in the Andean region are not high,” Esteban said. “You are not going to find acquisitions for more than $30 million in the region [with the possible exceptions of Brazil and Argentina]…because of the size of the markets…When you see the valuations in exits you realize that it’s impossible to get a relationship of 1 hit in 10 companies that you invest in, you need to invest in 10 companies and have a success in 5 to return something interesting…Because the exits aren’t high you need many more exits,”

Therefore, entering the early stage market here can be very risky business and “there is not enough deal flow right now in Colombia to invest a $50 million fund or a $60 million fund in a few years.”

That’s probably at least partially why, according to Esteban, “nowadays there are only 3 or 4 VCs: one focused on impact investment, another one more focused on BPO, and another one really active in VC and they’re the only fund in Colombia that has exits.”

That also means there aren’t examples of successful entrepreneurs for new entrepreneurs to look up to and to learn from.

Despite the hurdles, however, Colombia seems to be poised for growth in the startup ecosystem and Medellín in particular is becoming an international hotbed of entrepreneurial talent.

So what’s Esteban’s advice for new entrepreneurs?

“Entrepreneurs have to be much more prepared, to understand what it means to take a company from zero and make it grow in 3 or 4 years, in 4 countries…being really excellent in execution.” They need to “prove much more and be much more in the market. You don’t build a company from behind your Mac coding.”

Finally, if you have the newest hottest app, don’t go knocking on Esteban’s door just yet. “We don’t invest in applications,” he told me. “We won’t invest in applications. We invest in companies.”

As part of my consulting work, I sometimes help entrepreneurs prepare to seek angel or venture capital investment. That means helping with business plans, pro forma financials, pitches and pitch decks, and with figuring out what to expect in a term sheet and what all of the technical jargon means. I’m not a lawyer and, if you’re about to accept an offer from an investor, you really need to go over all of the terms with an attorney specializing in these types of deals. However, there is one term that comes up over and over again that new entrepreneurs are not familiar with/don’t understand that has a gigantic impact on the payout an entrepreneur can get when his or her company either fails and closes up shop or succeeds wildly and there is a profitable exit: the liquidation preference.

Again, if you’re looking at a real deal and about to sign some paperwork, go see a lawyer, but here is a basic rundown of what a liquidation preference is and how it affects an entrepreneur.

When you raise money from a venture capitalist, the VC will almost certainly expect to receive preferred stock as opposed to common stock. The holders of preferred stock receive preferential treatment if there is a liquidation event at the business. A liquidation event would be something like the sale of the business, a bankruptcy, or a dissolution of the business. One of those bits of preferential treatment that preferred stockholders receive in one of these events is the liquidation preference. A liquidation preference basically means that the investor who now holds preferred stock will get his or her investment back before the company’s assets are divided up amongst all of the shareholders. So, if an investor puts in $1 million dollars for a 20% equity stake with a 1x liquidation preference and then the company sells for $10 million, that investor first gets his or her $1 million out and then the remaining $9 million is divided among the shareholders based on percentages, so that same investor will get an additional $1.8 million for a total of $2.8 million. Without the liquidation preference s/he would have just received $2 million or 20% of the $10 million sale price.

The same goes if the company ends up selling at a lower valuation or closing its doors and this is actually why the liquidation preference came into existence: to protect the investors in case of such a loss. If the investor put in the same $1 million for 20% but then the company sold for just $2 million – without a liquidation preference the investor would only be entitled to $400,000 and would have to take that loss. With a 1x liquidation preference he or she would receive the $1 million investment back and then the remaining $1 million would be split between the shareholders.

Without a liquidation preference it would be possible for an entrepreneur to make money tanking a company – an investor may put in $1 million dollars for 20% and 1 year later the entrepreneur – who owns 80% – could decide to dissolve the business and take 80% of the money left, essentially screwing the investor. A liquidation preference seeks to more closely align the entrepreneur’s interests with the investor’s.

Liquidation preferences can also come in multiples. The examples above showed a 1x liquidation preferences but investors can also say they want 1.5 times, 2 times, or more of the invested money back first before divvying the rest up by percentages. This is sometimes referred to as a super liquidation preference and is absolutely not the norm, so be incredibly wary if you see this in a term sheet.

As you can see, the liquidation preference can drastically alter the returns an investor or an entrepreneur is entitled to so it’s important to understand what you’re agreeing to before signing on the dotted line and taking an investor’s money. While there are many items in a typical term sheet that can be tricky and easily misunderstood, the liquidation preference is the one that comes as the biggest shock to the vast majority of my clients so I hope this helps provide a bit of clarification.

After visiting Endeavor Mexico, Josh Ford put me in touch with Scott Wofford, a consultant and project leader at Ashoka who is developing a map of the entrepreneurial ecosystem in Mexico City including development organizations, funding organizations, universities, etc. JACK POT – this is just the kind of information that I am interested in.

Unfortunately, Scott’s report isn’t yet released publicly so I can’t share any lovely links, but Scott was kind enough to grab lunch with me and give me another take on what’s happening in the world of entrepreneurship in Mexico City and where the city’s ecosystem is headed in the near future.

One of the key differences he identifies between the ecosystem in Mexico and that in the United States are that there is more classism for aspiring entrepreneurs to contend with in Mexico and that

“classism impacts many things about being an entrepreneur including raising capital and being part of the right networks.”

Additionally, because of the social stratification, there is more need-based entrepreneurship in Mexico than in the United States. Many people become business owners because it is the only option they have to support themselves or their families, however, these are not the entrepreneurs that have the resources or desire to grow those enterprises into fully functioning, scalable companies.

At the same time, there’s a lack of investment capital – specifically venture capital, in Mexico. Scott believes this lack of venture capital has a few causes: venture capitalists have trouble finding a pipeline; lots of monopolies prevent industries from taking off through a startup because those monopolies have a choke hold and since the startups cannot make it “really big” they are less attractive to investors; and Mexico is missing the qualified talent to manage a successful fund.

Scott also identifies more entrenched corruption in Mexico as something that differentiates the ecosystem there from that in the United States. Because of this corruption, Mexico doesn’t fare well on the ease-of-doing-business index and it can be difficult for entrepreneurs without the right connections to get the proper permits and licenses to begin doing business or to expand an existing business.

On the positive side, however, because the social divisions are so defined,

“Once you’re in, you’re in,” Scott says. “Some of the success stories go through all of the programs – Ashoka, Endeavor, etc. even though they don’t necessarily need the help.”

This is a theme that came up in other interviews in Mexico City as well – because the ecosystem is still at its early stages, it’s a small community in which everyone knows everyone.

Mexico also maintains a strong family structure as a deeply entrenched part of its culture so friends and family “rounds” of investment are more common. Additionally, Mexico has a growing middle class and good macro-economic growth that, combined with its proximity to the U.S., position it well to bring established U.S. models and apply them in Mexico – usually for less risk.

So where does Scott see the Mexican entrepreneurial ecosystem in 5 – 10 years?

“Right now, 80%-90% of entrepreneurs who’ve been invested in or accelerated by one of the big programs will increase 25%-30% per year but only a few will be big success cases in terms of ROI.” In 5 – 10 years, “I think that there will be a couple of big success cases where entrepreneurs become pretty famous.”

Do you have experience in the Mexico City startup scene? If so, please let me know your thoughts on what Scott had to say in the comments sections below. Our next interview will be with Jackie Hyland of Angel Ventures Mexico.

Many an entrepreneur dreams of raising money from a prominent venture capital firm or angel investor, but this type of funding is hard to come by. If your company is suitable for an equity investment and you’ve been lucky enough to land an audience with some investors, it’s important that you don’t blow your pitch if you want to make a good impression and get the funding you need.

Today’s video gives you some quick tips to make sure that your pitch impresses your potential investors so that you can get money you need to build your dream startup.

When I started to research the entrepreneurship scene in Mexico I immediately discovered Jorge Madrigal. He’s the Founder and CEO of Aventura, runs numerous startup events in Mexico City including Apptualizate and Tech Startup Nights, and has been interviewed for and contributed to The Next Web. Lucky for me, he’s also a friend of a friend of mine. When I asked for an intro from that friend I was informed that,

“Jorge isentrepreneurship in Mexico,”

so I was extremely excited that he agreed to let me pick his brain about the Mexican startup scene.

Naturally, the first thing I wanted to know was how Jorge got into the startup scene in Mexico in the first place. Born and raised in Mexico, Jorge went to the U.S. for college where he joined his school’s entrepreneurship club. The faculty adviser often spoke about how international students come to the U.S. and then never return to their home countries to “fix things.” Jorge didn’t want to be one of those people and believed that Mexico had a lot of potential, so he returned to Mexico looking for a job in private equity but ended up at an angel fund instead. Here he says he learned how far behind entrepreneurs in Mexico really were as compared to their counterparts in the U.S.

As Jorge sees it, Mexico has plenty of people with a lot of money, but they don’t necessarily want to invest it in helping someone else build a company. At the same time, U.S.-based investors are open to investment in Mexican companies, but there just isn’t enough deal flow to make them sit up and notice. Despite all of the hype about access to capital as a key issue, Jorge sees it differently. He says,

When Jorge asks investors to come to Mexico City to work with his startups they’re happy to, but they ask him to deliver a certain number of interesting companies/potential deals for them within their investment niche and he simply can’t do it.

And the #1 reason there isn’t enough deal flow? According to Jorge, the most important thing lacking is a community of entrepreneurs and support for their endeavors. He doesn’t see people sharing and developing a sense of community despite major investment from the government including the creation of clusters, incubators, accelerators, etc. As Jorge sees it, these efforts are falling short because the government is attempting to copy other countries’ models but,

“Mexico has Mexican problems [to overcome] – not Chinese problems or U.S. problems – problems that are innate to Mexico. The biggest mistake,” according to Jorge,” is trying to do things exactly as they’re done in other countries.”

One of those “Mexican issues” that Jorge identifies is that entrepreneurship is not accepted as a legitimate career choice. In fact, it’s often seen as a euphemism for not having a job. This is partly because there are not enough Mexican entrepreneurs serving as role models to show how you can actually make a great living through entrepreneurship and partly because the Mexican family is more economically dependent on all of its members across multiple generations than in, say, the United States, so the decision to try a startup will likely affect an entire family, not just the individual entrepreneur. Plus, when a young person is still living with his/her parents (which, different from the U.S., is often true until s/he gets married) it can be much tougher to break from this disapproval and give a startup a chance.

Another issue that Jorge points out is the greater socio-economic stratification present in Mexican society. The networking opportunities, education, or money to be able to take the first steps into entrepreneurship aren’t readily available to everyone. This is one reason that all of the events Jorge hosts for current and aspiring entrepreneurs are free. A typical event like his, but hosted by another organization, would cost 700 – 1,000 pesos, he says. That’s less than $100 USD (at the high end), but for a young person making maybe $500-$700 USD per month, it’s a big expense if they’re not yet sure if entrepreneurship is right for them. In fact, Jorge says,

“For me, this whole entrepreneurship thing is really about creating more social mobility in Mexico.”

His efforts are certainly working. When Jorge began hosting events less than 2 years ago he was able to pull in just 45 attendees in a metropolitan area of well over 20 million people. Now, he’s able to attract more than 200 attendees per month. He’s also successfully helped students at 3 universities start entrepreneurship clubs to start getting young people thinking and talking about entrepreneurship and building the next generation of the entrepreneurship community.

So, with all of the efforts that Jorge and others are making to develop Mexico’s entrepreneurship community and all of the potential that the country has, where does he see the Mexico City startup scene in 5 – 10 years? “I don’t know,” he says.

“The thing I fear the most is …that our tech entrepreneurship community doesn’t get to the point that if the current promoters quit or leave the whole thing won’t die.”

But for now anyway, Jorge will hold down the fort in Mexico City trying to build a more robust tech startup ecosystem and to develop the next generation of Mexican entrepreneurs.

Do you have experience in the Mexico City startup scene? If so, please let me know your thoughts on what Jorge had to say in the comments sections below. Our next interview will be with Joshua Ford of Endeavor Mexico.